Do you want to flip houses or invest in real estate? If you don’t have the money, getting a loan can be the next best thing. However, traditional loans from banks and credit unions often take too long and require good credit. Consider private money lenders if you are serious about starting your new business in real estate. Read on to learn more about how these lenders can help you and why lenders want to invest money in you.
Who Are Private Money Lenders?
Who are private money lenders? According to Financing Strategies For Real Estate Investments, a private money lender is “a noninstitutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction.” Most private money lenders come from strangers who are interested in investing their money in real estate.
However, friends and family are another alternative lender to consider. If your friends and family have extra money to help you, then it can be convenient to ask them for the loan. They know they can trust you, so you don’t need good credit to get a loan from them.
You can also ask co-workers or other people you have connections with for a loan. However, some people usually have to resort to finding private money lenders online.
Why Lenders Want to Invest Money in You
Why do private money lenders want to invest money in you? Most of them want to do something with the vast amount of money they already have. However, some want to invest so they have enough after retirement. As stated by Financing Strategies For Real Estate Investments, a study showed about 22% of American workers have at least $100,000 saved up for their retirement. Not everyone who retires will leave the money in the bank where it won’t do much good.
Instead, those in retirement, or close to it, want to invest their money to earn more for their future. They commonly profit from the interest they make on the loans they extend to borrowers for flipping houses or investing in real estate. For that reason, there’s always money out there for you to borrow for your new real estate business. All you have to do is look for people willing to invest in your idea.
Getting an Approval
You don’t need good credit to get a private money loan. That’s because these lenders have less restrictive borrowing parameters than traditional lenders. Instead, they look for an excellent plan for the money they’re investing. Creating a mutually beneficial plan for profit will only make a stronger case for them to approve you.
You should also prepare for the unexpected when you are flipping houses or investing in real estate. You might find asbestos in the attic or too much mold in a wall that will cost you more money than you planned on spending. That can create problems if you don’t have a backup plan for how you will pay for it.
For example, you may not be able to stay on schedule to sell. Or worse, you risk losing the property to the lender altogether when you can’t repay the loan. However, if you have a backup plan, then lenders are often more willing to approve you for a loan. That’s because backup plans give the lender faith that you’ll be able to repay the loan on time, despite these kinds of surprises.
The Downside of Using Private Money Lenders
There are several reasons why using private money lending can be a good thing for getting your business up and running. However, always consider the pitfalls of using these lenders before applying for a loan.
Getting a loan from family and friends can be another option for you. But should you do it? Hiccups in repaying those closest to you can deteriorate otherwise healthy relationships, especially when payments are late or behind.
You will also have to deal with higher interest rates with private money loans than you would with traditional ones. So, consider whether building your real estate business is worth the extra money you have to pay these lenders.
If you want a private money lender to invest in you, then research online to find the right one right for you. Get a few offers before deciding on one, so that you know you’re choosing the best loan available to you. Lenders want to invest money in you, so get started today and make your dream business a reality!